Excess Savings and Twin Deficits: The Transmission of Fiscal Stimulus in Open Economies

Aggarwal, Rishabh; Auclert, Adrien; Rognlie, Matthew; Straub, Ludwig

doi:10.1086/723586

Cited by 9 publications

(1 citation statement)

References 33 publications

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“…As can be seen, the current account deficit widened in 2020, improved in 2021, and then widened again in late 2021-2022. This pattern matches well with the pattern of movements in US aggregate demand and savings, which originally increased during the lockdown but then started to fall given aggregate demand stimulus (See Aggarwal et al (2023), Gourinchas et al (2021) for similar current account dynamics). had an inflationary effect, but the rebalancing later as the economy reopened did not have a disinflationary effect.…”

Section: Baseline Quantification Exercisesupporting

confidence: 75%

Pandemic-Era Inflation Drivers and Global Spillovers

di Giovanni,

Kalemli-Özcan,

Silva

et al. 2023

Staff Reports (Federal Reserve Bank of New York)

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We estimate a multi-country, multi-sector New Keynesian model to quantify the drivers of domestic inflation during 2020–23 in several countries, including the United States. The model matches observed inflation together with sector-level prices and wages. We further measure the relative importance of different types of shocks on inflation across countries over time. The key mechanism, the international transmission of demand, supply and energy shocks through global linkages helps us to match the behavior of the USD/EUR exchange rate. The quantification exercise yields four key findings. First, negative supply shocks to factors of production, labor and intermediate inputs, initially sparked inflation in 2020-21. Global supply chains and complementarities in production played an amplification role in this initial phase. Second, positive aggregate demand shocks, due to stimulative policies, widened demand-supply imbalances, amplifying inflation further during 2021-22. Third, the reallocation of consumption between goods and service sectors, a relative sector-level demand shock, played a role in transmitting these imbalances across countries through the global trade and production network. Fourth, global energy shocks have differential impacts on the U.S. relative to other countries’ inflation rates. Further, complementarities between energy and other inputs to production play a particularly important role in the quantitative impact of these shocks on inflation.

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Section: Baseline Quantification Exercisesupporting

confidence: 75%